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the costs for Illinois to comply with the limits of the CAIR rule entirely within Illinois,
without the benefit of a regional trading program.
According to Marchetti, the initial modeling of the economic impacts to Illinois power
generators of CAIR and the mercury cap-and-trade rule under section 111(d) of the Clean
Air Act focused on determining the compliance costs to Illinois power generators of
meeting the targets and timetables of the U.S. EPA’s proposed CAIR and the version of
the Mercury Reduction Rule that allows for a cap-and-trade regime to control mercury.
Under the preliminary draft of this analysis shared with Illinois EPA, under this proposed
regulatory regime, Illinois power generators would be allowed to trade SO2 and NOx
allowances within a 28-state CAIR region and mercury allowances nationally. This
evaluation used the Emission-Economic Modeling System (EEMS). EEMS identifies a
combination of compliance options (i.e., control technology or allowance trading) that
approximates the least cost solution for a given power generation facility system. The
EEMS database was updated for these analyses using Energy Information Association
data and data provided through interviews with power generators to reflect changes in
operation (e.g., retire/repowering/fuel switching) and control technology deployments.
Illinois power generation facilities will have to reduce their current SO2, NOx and
mercury emissions by more than 60 percent to attain the reduction targets outlined in both
CAIR and the mercury cap-and-trade rule. The CAIR analysis indicates that states will
have a little more flexibility in the allocation of NOx allowances to units within their
borders. Under the current Illinois NOx rules, a “new” unit becomes classified as an
existing unit as control periods move forward. Illinois’ NOx budget in the 28-State CAIR
region is 73,622 tons in 2010 through 2014, and 61,352 tons in 2015 and thereafter. The
mercury cap-and-trade rule specifies that the 2010 cap for mercury should be set at a
level that can be achieved through the installation of SCR controls and flue gas
desulfurization devices (scrubbers) needed to meet the 2010 NOx and SO2 caps for the
CAIR. The 2018 national mercury cap of 15 tons per year is the same as the Bush
Administration’s Clear Skies proposal. The Base Case SO2 and NOx emission forecast
for all affected units was based on the assumptions that these units would have to comply
with both the federal Acid Rain Program requirements and the NOx SIP Call
requirements.
The Marchetti simulation also took into account future technology deployment and fuel
switches planned by Illinois power generators to meet the above regulatory regimes.
Assumptions defining the cost and performance of NOx, SO2 and mercury control
technologies were adopted by Marchetti that reflect experience from operating units as
well as those extracted from the public literature. Mercury compliance involved the
utilization of EEMS to achieve system-wide NOx, SO2 and mercury emission caps for the
years 2010 – 2020 at the least possible cost. The system caps were a summation of unit
allowances, based upon the allowance allocation system. Under both CAIR and the
mercury regulatory regime, power generators were allowed to trade allowances. In
addition, all banked Acid Rain Program SO2 allowances through 2009 could be carried
forward on a one-to-one basis to meet the reduction targets of the CAIR. By the end of
2003, Illinois power generators had 5.4 gigawatts of SCR and 1.0 gigawatt of scrubbers
